Trade Ctrip.com’s (NASDAQ: TCOM) Drop for a Potential 100% Return in Seven Weeks

Friday wasn’t a very good day for stocks. All four indices opened lower and remained there throughout the day. It has been a while since we saw a day where none of the four spent any time in positive throughout an entire day.

The Russell took the biggest hit with a loss of 1.26% and it was followed by the Nasdaq with a decline of 0.85%. The S&P fell 0.72% and the Dow took the smallest loss at 0.54%.

Seven of the 10 sectors moved lower on the day. The energy sector tumbled 2.53% as the worst performer. The communication services sector and the tech sector tied for the second worst loss with both falling 1.36%.

The utilities sector led the way with a gain of 0.79% and it was followed by the consumer discretionary sector which rallied 0.39%. The consumer staples sector joined them in positive territory with a gain of 0.09%.

My scans turned in another heavily negative result on Friday with 91 bearish signals and 10 bullish signals.

The barometer dropped to -64.8 from -45.2 and that is the lowest reading since March 19.

With the abundance of bearish signals to choose from you would right to assume that today’s trade idea is a bearish one. Ctrip.com International (Nasdaq: TCOM) appeared on the bearish list and it has poor fundamental ratings. The EPS rating is a 22 and the SMR rating is a D.

It appears that a downwardly sloped trend channel is forming on the stock and it just hit the upper rail of the channel. The lows in March and April are what I noticed first and then saw how the highs seemed to connect at the same angle. The stock hit overbought territory last week and both the RSI and the stochastic indicators turned lower. I look for the next move down to the lower to occur in the coming weeks.

Buy to open the June 42-strike puts on TCOM at $4.10 or better. These options expire on June 18, 2021. I suggest a target gain of 100% and that means the stock will need to drop to $33.80. That target is below the low in April, but the lower rail of the channel is already below the target. I suggest a stop at $41.80.

— Rick Pendergraft

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